Telecom operators, including Airtel, Reliance Jio and Vodafone Idea will need to invest $30.5 billion to roll out 5G services in the country, according to an analysis done by UBS.
5G or Fifth Generation mobile technology, with its enhanced capabilities to transmit data more efficiently and at higher speeds, is all set to be a gamechanger for Indian telecom consumers by next year. The biggest benefit for millions of mobile users in a country like India, where call drops and poor data connectivity have become the norm, is that 5G promises to make wireless networks close to what wireline broadband networks offers — uninterrupted service and unlimited bandwidth.
Traditional wireless technologies such as 2G and 3G work on a shared network concept. This means that users in an area share resources like spectrum and radio base station capacities, while making calls or browsing the Internet. As a result, the quality of service would drop if there are more users in a particular area. On the other hand, in a fixed line environment, the quality of service is not dependant on the number of users at any given time because a dedicated cable connects the consumer’s premises directly to the operator’s exchange.
According to UBS, the need for a dense site footprint and fibre backhaul in 5G will likely shift the balance of power towards larger and integrated operators with strong balance sheets.
Bharti Airtel may have to invest $2 billion annually or about 65 per cent of its India annual capex run-rate. “Bharti has solidly defended its market share and has narrowed the gap with Jio on 4G network reach, with improving 4G net adds. The company recently revamped its digital offering and launched converged digital proposition ‘Airtel Xstream’ (link) offering digital content across TV, PC and mobile devices along with IoT solutions for connected homes. Further, Jio’s recently announced fixed broadband plans starting at Rs 699 are not as aggressive as we (and the market) feared and, therefore, do not pose significant pricing pressure on Bharti’s broadband average revenue per user,”UBS said.
According to UBS, the capex for Jio would, however, be lower, due to its larger tower footprint and higher proportion of towers on fibre backhaul, compared with Bharti Airtel and Vodafone Idea. “We estimate the sector can reduce overall capex by 15-20 per cent if the three Indian telcos share towers and fibre (either commercially or driven by the regulator) – third-party tenancy poses upside risks to our estimates,” UBS said in a report.
The Indian government plans to allocate 5G spectrum via auctions in 2020. “Considering its in-house data centres and investments into a content distribution network (CDN), we believe Jio can transition to 5G in a time-efficient manner. We think the 5G rollout will give Jio an opportunity to strengthen its nonconsumer-based product ambitions; and pricing power for differential services,” UBS said.
Analaysts said there are three things that the Centre must do immediately to hasten the adoption of 5G. First, lay down a clear roadmap of spectrum availability and earmark frequency bands aligned with global standards. Given that 5G services will be supporting massive data applications, operators will need adequate spectrum. Second, there is a need to move away from the existing mechanism of pricing spectrum on a per MHz basis. 5G services require at least 80-100 Mhz of contiguous spectrum per operator. If the Centre were to fix the floor price based on the per Mhz price realised in the last auction then no operator would be able to afford buying 5G spectrum. The pricing, therefore, will have to be worked out afresh, keeping in mind the financial stress in the telecom sector and affordability of services. Finally, the Centre must complete the national optical fibre network rollout on a mission mode as 5G services will require huge back-haul support, for which existing microwave platforms will not be sufficient